Buffett Rule is politics over policy

By Mike Brownfield

Posted: April 13, 2012

President Obama recently laid out his case for the “Buffett Rule,” a plan to raise taxes on successful Americans and small businesses. The core of his argument: The rich aren’t paying their fair share.

It makes for great populist rhetoric but terrible policy. Worse, it’s a distraction from the big issues facing the nation, such as the deficit, the economy, jobs, gas prices, and health care.

Will the president’s tax hike at least tackle our fiscal problems? No. According to a recent analysis by the congressional Joint Committee on Taxation, the Buffett Rule would raise a mere $47 billion over 10 years, or 0.5 percent of the president’s new spending. Soaking the rich cannot get deficits down; only spending reductions can do that.

The Buffett Rule would only weaken the economy and employment. It would fall most heavily on job creators and confiscate resources that would otherwise be used to start new businesses, expand existing businesses, and hire more workers.

The president has said “this is about giving everybody the chance to do well.” Really? Raising taxes on anybody somehow gives everybody the chance to do well? This is absurd even by the low standards of American political rhetoric.

Under the Buffett Rule, businesses and families earning $1 million will pay a minimum 30 percent effective tax rate. The president says those Americans aren’t paying enough. As proof, he points to billionaire Warren Buffett’s secretary, who reportedly pays a higher tax rate than her uber-wealthy boss. But he’s distorting the facts.

Many wealthy Americans receive dividends and capital gains, investment income that is subject to multiple levels of taxes. First, the investment income results from investment. This capital didn’t appear out of thin air. It was earned and taxed previously. Once invested, it generates income that is taxed at the corporate rate, 35 percent. And then it’s taxed again at the individual level for dividends and capital gains, 15 percent.

Imagine you’re driving down a toll road, and you pay three separate tolls. The first toll of $3.50 is when you get on the highway. Then, after a few miles, you pay another $3.50. And when you exit, there’s a final toll of $1.50. A reporter asks as you leave the last tollbooth how much you paid.

What’s the most accurate answer — what you paid at the last tollbooth, or what you paid altogether? Feeling $8.50 lighter in the wallet, you would likely say the latter. But Obama only wants to talk about the last toll paid, not the total, and that’s how he makes his disingenuous argument.

And all of this leaves out the final tax that many wealthy Americans pay: the death tax, which is set to return to 55 percent in 2013.

Then there’s the inconvenient fact that if you look at only the last level of tax, the highest-earning families and businesses in America are already shouldering the vast majority of the tax burden. The top 1 percent of earners paid more than 38 percent of federal income taxes, while earning 20 percent of all income, in 2008. The top 10 percent earned 45 percent of income and paid 70 percent of all taxes. In contrast, the bottom 50 percent earned 13 percent of all income and paid less than 3 percent of federal income taxes.

Instead of offering solutions, the president is offering class warfare in the guise of the Buffett Rule.

Mike Brownfield is assistant director of strategic communications at the Heritage Foundation.